Ryland Group, Inc. v. Wills, 820870

• Decision Date: 14 June 1985
• Docket Number: No. 820870,820870
• Citation: 229 Va. 459,331 S.E.2d 399
• Parties: The RYLAND GROUP, INC. v. P. Reed WILLS, Trustee, etc., et al. Record
• Court: Virginia Supreme Court

Page 399

331 S.E.2d 399

229 Va. 459

The RYLAND GROUP, INC. v. P. Reed WILLS, Trustee, etc., et al.

Record No. 820870.

Supreme Court of Virginia.

June 14, 1985.

John P. Ellis, Arlington (Thomas Q. Sullivan, Schwartz & Ellis, Ltd., Arlington, on briefs), for appellants.

Joseph E. Bankert, Alexandria, R. Mark Dare, Fairfax (John P. Rowley, III, Fairfax, Brock & Bankert, Alexandria, Hazel, Beckhorn & Hanes, Fairfax, on briefs), for appellees.

Present: All the Justices.

COCHRAN, Justice.

The question for determination in this appeal is whether the contract giving rise to the litigation violated the rule against perpetuities and therefore was void.

The Ryland Group, Inc. (Ryland), filed a motion for judgment in the trial court against P. Reed Wills as trustee, P. Reed Wills and Joanne T. Wills individually, and Wills Investment, Inc. (collectively, the Wills), and Capital Homes, Inc. (Capital). Ryland alleged, in three counts, breach of contract and fraud and misrepresentation by the Wills and interference with contract by the Wills and Capital. Ryland sought to recover compensatory and punitive damages under each of the three counts. The trial court sustained Capital's demurrer to the third count, ruling that the contract in issue violated the rule against perpetuities and therefore was void ab initio. With leave of court, Ryland amended its motion for judgment to allege, in addition to the allegations previously asserted, that the parties intended the contract to be valid, and to add a count seeking reformation of the contract on the ground of mistake if the contract failed to provide for termination in time to avoid the rule against perpetuities. By order entered February 19, 1982, the court sustained demurrers filed by the Wills and Capital to the amended motion for judgment and dismissed the action with prejudice.

The effect of the demurrers, of course, was to admit as true all material facts that were well pleaded. In passing on the validity of the demurrers, the court was required to consider all reasonable inferences of fact which fairly and justly could be drawn from the facts alleged. See Chippenham Manor v. Dervishian, 214 Va. 448, 450, 201 S.E.2d 794, 796 (1974). We are guided by the same principles in our review of the allegations in the amended motion for judgment.

During the period April 10, 1978, until December 1979, Wills owned a beneficial interest in four sections of a proposed subdivision. By agreement dated April 10, 1978, Ryland, as purchaser, agreed to buy and P. Reed Wills, Trustee and/or Assigns, as seller, agreed to sell at a specified price three model lots in the subdivision. Settlement was to be held upon completion of certain work by the seller, receipt of building permits by the purchaser, and the parties' obtaining certification from governmental authorities of availability of sewer and water and approval by the Veterans Administration. Under the agreement, Ryland acquired an option to purchase 255 additional lots in the same four sections of the subdivision. The seller agreed to develop the lots by installing various facilities, including sewers, storm drainage systems, water connections, curbs, gutters, sidewalks, streets, street lights, and street signs.

No provision was made for settlement on or before a specified date, but the agreement stated that time was of the essence. Under Section 2.03, entitled "Development Schedule," the seller was required to complete the necessary development work but no deadline was specified. Under Section 2.04, entitled "RYLAND'S Pace," the seller could terminate the option granted to Ryland if Ryland failed to purchase a specified number of lots per quarter, the first quarter commencing 60 days after purchase of the three model lots. If the seller failed to develop lots within the times specified in Section 2.03 (none were specified), times for Ryland's purchases were to be postponed for periods equal to the delay. Section 2.04 further provided as follows:

No subsequent quarterly pickup requirement shall end nor any subsequent quarterly pickup requirement begin if the SELLER shall not have developed for immediate purchase by RYLAND a number of lots equal to RYLAND'S scheduled pickup in the quarter subsequent to the current quarter.

Section 2.05, entitled "Settlement," provided:

RYLAND shall settle for lots within thirty (30) days of RYLAND'S commitment to purchase any such lot, or the development thereof by SELLER as set forth in Article III, whichever shall last occur.

Section 2.06, entitled "Expiration," provided that the options would expire on December 31, 1980.

Exhibit B, attached to the agreement, set forth the purchase price for the three model lots, provided that a minimum of 18 lots would be purchased by Ryland each quarter, and listed the purchase price for each of the 18 lots to be purchased each quarter for 13 quarters and each of the 21 lots to be purchased in the 14th quarterly acquisition. By addendum dated June 9, 1978, it was provided that the "first quarterly takedown" by Ryland would commence 90 days after purchase of the model lots rather than 60 days, and the purchase prices were increased as to certain lots. Another addendum, dated July 16, 1979, also provided that the first quarterly takedown would commence 90 days after purchase of the model lots and increased the listed purchase prices for the model lots and for the other 255 lots.

By deed dated June 28, 1978, all the lots were conveyed to Wills Investment, Inc., a corporation organized and wholly owned by P. Reed Wills and Joanne T. Wills. Wills Investment, Inc., conveyed certain lots in section four of the proposed subdivision to Ryland in accordance with the option agreement. In December of 1979, however, Wills Investment, Inc., conveyed all the lots in sections one, two, and three to Capital. ¹

In its amended motion for judgment, Ryland alleged in the first count that this last conveyance constituted a partial breach of the option agreement by the Wills. Ryland alleged in its second count that the Wills intentionally misrepresented to Ryland their ability to convey title to the lots at a time when they were negotiating to sell the lots to Capital. Ryland alleged in its third count that the Wills and Capital, with actual and constructive notice of Ryland's option rights, caused the sale to be made to Capital in willful and malicious interference with the option agreement. In its fourth count, Ryland asked for reformation of the contract.

Prior to amendment in 1982, the rule against perpetuities required that interests in property must vest, if at all, within the period fixed by the rule. ² Shirley v. Van Every, 159 Va. 762, 776, 167 S.E. 345, 350 (1933). Normally, the period is a life or lives in being plus 21 years and 10 months. However, where the parties are corporate entities and do not contract with reference to a life or lives in being, the determinative period is 21 years from the date of creation of the interest. United Virginia Bank v. Union Oil, 214 Va. 48, 51, 197 S.E.2d 174, 177 (1973).

The rule against perpetuities is applicable to option contracts, which are unenforceable if they may not be exercised within the period of the rule. Id., 197 S.E.2d at 176; Skeen v. Clinchfield Coal Corp., 137 Va. 397, 403, 119 S.E. 89, 90 (1923). An option contract creates no present vested interest; instead, the holder of an option has an executory interest by virtue of the possibility that he may obtain a future right to purchase certain property. See Skeen, 137 Va. at 406, 119 S.E. at 91; 1 R. Minor, The Law of Real Property § 823 (2d ed.1928); 2 H. Tiffany, The Law of Real Property § 405 (3d ed.1939 & Supp.1985).

The trial judge, in his letter opinion stating the basis for sustaining Capital's demurrer to Ryland's original motion for judgment, noted the two aspects of the agreement. One aspect was an option to purchase, and the other, upon exercise of the option, became a contract for the purchase and sale of realty. The agreement fixed the period, less than three years after the date of the agreement, within which the option rights could be exercised by Ryland. Therefore, the judge's opinion was correct that the option to purchase did not violate the rule against perpetuities.

The trial judge further stated that while Ryland would acquire an equitable estate in a lot upon exercise of the option to purchase it, legal title would not vest until delivery of the deed at settlement. Since settlement might not occur until development had been completed and the judge concluded that development might be delayed more than 21 years, he was of opinion that the contract violated the rule against perpetuities.

We agree that upon exercise of the option, Ryland would acquire an equitable interest in the lots it committed itself to purchase, with the right to compel conveyance of legal title. See Carmichael v. Snyder, 209 Va. 451, 455, 164 S.E.2d 703, 706 (1968); 2 R. Minor, supra, § 1190; 2 H. Tiffany, supra, § 407. Upon exercise of the option, the agreement would become an executory contract for the sale of land with mutuality of obligation and remedy. Carter v. Hook, 116 Va. 812, 817-18, 83 S.E. 386, 388 (1914). Such a contract creates an interest in land enforceable in equity and is therefore subject to the rule against perpetuities. See Comstock v. Smith, 255 Ark. 564, 566, 501 S.W.2d 617, 618 (1973); Restatement of Property § 401 comment b (1944); 61 Am.Jur.2d Perpetuities and Restraints on Alienation § 53 (1981).

We also agree that vesting of legal title is postponed until delivery of the deed at settlement. We do not agree, however, that vesting of legal title might not occur within the period of the rule against perpetuities.

Settled contract law implies a reasonable time limitation for performance of conditions in contracts for the sale of land where no time for performance is fixed by the contract itself. Huselton v. Roop, 215 Va. 127,...